In February of 2020, the national unemployment rate reached a historic low of 3.5%. Two months later, the unemployment rate when up to a recessionary level of 14.8% as 40 million workers became unemployed due to the COVID-19 pandemic. The results: state UI programs were decimated, state UI trust funds were depleted, and state 2021 UI experience tax rates went up.
The Governor and the Maryland legislature have responded, making significant changes in Maryland Unemployment Insurance laws. Governor Hogan issued an Executive Order that: 1) suspended the normal “computation date” for tax rate calculation; and 2) changed the “tax rating year” to exclude the 12-month period of July 1, 2019 through June 30, 2020. The effects of this Order remain in effect until after the end of the COVID-19 state of emergency.
The purpose of this Order is to minimize the impact of the COVID-19 pandemic on Maryland UI tax rates. As a result, 2021 UI taxes will use the “benefit ratio” calculation data used to calculate employers’ 2020 tax rates. Note however that for 2021, the highest tax rate Table F, rather than Table A (the lowest tax rate table), is in effect. Thus, for 2021, tax rates will range from 2.2% to 13.5%.
Relief Act of 2021
A number of new laws were passed: first, the Relief Act of 2021. This Act signed by Governor Hogan will provide more than $1 billion in tax relief and economic stimulus funds to Maryland residents, small businesses, and unemployed workers struggling with the impact from COVID-19. The RELIEF Act first repeals 2020 and 2021 state and local income taxes on unemployment insurance benefits for individual claimants who have annual federal adjusted gross income of less than $75,000, or $100,000 for married couples filing jointly.
Second, the Act provides for a grant of $1,000 to any claimant for unemployment insurance benefits that is pending an eligibility determination and has been in adjudication for at least 30 days.
Third, the 2021 UI tax rates will be calculated based on the employer’s pre-pandemic experience, using the computation date of July 1, 2019. This provision will be in effect through the second July after Governor Hogan lifts the state of emergency.
Fourth, taxation method employers with fewer than 50 employees may defer their UI tax liability for the first three quarters of 2021 by waiting to submit their quarterly contribution reports until January 31of 2022.
Fifth, reimbursable employers with fewer than 50 employees may defer the payment of their UI bills for the first 3 quarters of 2021 by waiting to submit payment until January 2022. Reimbursable employers may additionally receive authorization from the Department of Unemployment Insurance (DUI) to defer payments for the calendar year 2022 until a date established by DUI. Note: Reimbursable employers will not be considered delinquent or charged interest payments for the deferral period.
Senate Bill 816: Employer Contributions and Reimbursement Payments
This bill addresses the following: it requires employers for certain calendar years be offered a variety of payment plan options that spread certain contribution due dates through the end of August; it requires that a variety of additional payment plan options be offered; it authorizes certain employers to elect to delay submitting certain contributions for certain calendar quarters; and it provides that nonprofit and governmental entities may elect to defer payment of reimbursement bills for calendar year 2021.
Senate Bill 817: Study on Unemployment Insurance System Reforms
Another bill that passed requires a study of reforms to Maryland’s unemployment insurance system. It further requires monthly reporting to the Department of Legislative Services and the Joint Committee on Unemployment Insurance Oversight on the status of the study, and requires consultation with other stakeholders, and as well as requiring interim and final reports.
Senate Bill 819: Weekly Benefit Amount – Income Disregard
This bill increases the Partial Benefit Credit, which is a disregard of income earned each week, in determining the benefit amount the claimant would receive that week. A claimant can now earn $200 per week — up from $50 per week — before the claimant’s weekly benefit amount is reduced.
2021 Maryland UI Tax Liability
As noted, employers tax rates for 2021 will be based on Table F, the state’s highest rate table. The range of tax rates will be from 2.20% to 13.50%. New employers will have a New Employer Rate of 2.60%. Additional legislation was passed this year that will require the State to move back to (at least) Table C for 2022 and 2023.
Personal Federal and State of Maryland Income Taxes
UI benefits are normally subject to federal and state taxes. The American Rescue Plan Act of 2021 changed an individual’s tax liability for federal purposes. Under the law, the first $10,200 in UI benefits received are not subject to federal taxes; only amounts exceeding $10,200 are considered taxable income.
Note, this tax exemption applies only to individuals and joint tax filers that earned less than $150,000 in 2020. If an individual receives taxable amounts, the UI benefit should be reported on I.R.S. Form 1099-G. Note: When the individual collected benefits, they indicated whether they wanted taxes withheld. If they did not elect coverage, they will have to pay taxes when they file their 2020 return.
Maryland UI benefits are normally subject to state taxability that follow federal taxing provisions. However, for calendar years 2021 and 2022, UI benefits for individuals reporting federal adjusted gross income of $75,000 or less, and married couples reporting $100,000 or less, are not taxed.
Fraudulent Unemployment insurance Claims
Significant numbers of fraudulent UI have been filed nationwide resulting in the loss of more than a billion dollars. Thus, for organizations, auditing your quarterly UI claims statements and annual UI tax return is a recommended activity. In these times, it is critical. Individuals receiving a Form 1099 -G or an incorrect Form should contact the Maryland Department of Labor at http://www.dllr.state.md.us/employment/unemployment.shtml